Mortgages/Transcript
Transcript Text reads: The Mysteries of Life with Tim and Moby Text on a sign in front of a house reads: For Sale, Open House. Tim and Moby step out of the house through its front door. Tim wears a T-shirt and Moby is dressed in a suit and tie. TIM: Well, all things considered, you did pretty well. MOBY: Beep. TIM: Yeah, I think they're going to accept your offer. Moby begins dancing to techno music. TIM: Uh...yeah, I wouldn't do the mortgage dance just yet. Tim reads from a typed letter. TIM: Dear Tim and Moby, what exactly is a mortgage? From, Jon. Funny you should ask. Buying a house or apartment isn't as simple as buying groceries or a new bike. Moby stands at a grocery store checkout lane. He places a full-sized house on the checkout counter. TIM: The average home costs well over $100,000. Text on the cash register's screen reads: $250,000.00. TIM: And most people don't have that kind of money just lying around. Moby reaches into his pocket and pulls out a penny, a nickel, and a small metal bolt. TIM: Instead, they take out a special kind of loan called a mortgage. A loan officer in a bank slides a mortgage form across his desk to Moby. TIM: The bank pays for the house, you move in, and you pay back the loan in monthly installments over many years. MOBY: Beep. TIM: Well, any time a bank lends you money; they're taking a risk that you might default on the loan, or not pay them back. To protect themselves, banks require that you put up collateral. That's something of value that they can take in case you default. Moby offers a cow to the bank's loan officer. TIM: Collateral can be anything from a valuable coin collection, stocks, bonds, anything worth selling. In a mortgage, the home itself is the collateral. So, if you default on your monthly payments, the bank can kick you out of your house and sell it. Moby sits in his kitchen. He is wearing a bathrobe, drinking a cup of coffee, and reading a newspaper. Outside on his lawn, a sign appears. Text on the sign reads: For Sale. Moby looks unhappy. MOBY: Beep. TIM: Well, figuring out the monthly payment is where things get a little, um, math-y. First, we need to know the mortgage's term, or the length of the loan. The most common term is 30 years, which breaks down to 360 monthly payments. Text reads: Term = 30 Years (360 Payments). TIM: Usually, you have to pay for a percentage of the home up front, out of your own pocket. Additional text reads: Cost of Home = $250.000. TIM: This is called a down payment. Additional text reads: Down Payment 20% = $50,000. TIM: The amount you borrow is the cost of the home minus the down payment. This is called the principal. Additional text reads: Principal = $200,000. TIM: Then there are property taxes, insurance, processing fees. Additional text reads: Property Taxes, Insurance, Processing Fees. TIM: But we'll keep it simple for our example. All of the text disappears. MOBY: Beep. TIM: Well, unfortunately, it's not as easy as paying back the principal. The bank makes money by charging you interest, which is a percentage of the principal. You could say that interest is the cost of borrowing money. If this bank charges an interest rate of six percent a year, by the time 30 years is up, you'll have paid more in interest than you borrowed. Text reads: Annual Interest (6%) ×30 years = $231,676.38. Additional text indicates that this interest is in addition to the $200,000 cost of the house. MOBY: Beep. TIM: Yeah, I know. Anyway, we add the whole thing up, and divide that by the number of payments we'll be making. Text reads: $200,000 + $231,676.38 = $431,676.38. Additional text reads: $431,676.38 ÷ 360 = $1,199.10. TIM: So, all you have to do is come up with $1,199 a month, and you're home free. MOBY: Beep. Moby frowns. TIM: Well, you have to look at buying a home as an investment. When you complete a mortgage, you've bought a house. You can sell it and often make your money back. Moby drives a lawn tractor in the front yard of his house. TIM: Even if you sell your home before the mortgage is paid off, you get back the portion of the principal you've already paid. That portion is called your equity in the home. A pie chart illustrates the equity, or amount already paid on a house's principal, as Tim describes. TIM: But let's get you qualified for this loan before we think about that. Tim shows Moby an application form for a mortgage. TIM: In general, your monthly payment can't be more than 28 percent of your monthly income, or the bank just won't trust you to be able to pay it back. Tim pauses to do a calculation with a pencil on the application form. TIM: So, in your case, that would mean you'd need to be making more than $4,200 per month. How much are you making anyway? MOBY: Beep. Moby looks unhappy. TIM: Nothing? How do you expect to get this loan? MOBY: Beep. Moby smiles and shows Tim a small desktop printer. Moby pushes a button on the printer, and pieces of currency come out. TIM: What, wait. You can't just print money whenever you need it. Moby stands and begins to dance to techno music. The printer continues producing money. The loan officer stands and dances beside Moby. Tim buries his face in his hands. TIM: Aw, you guys. This is so illegal. Category:BrainPOP Transcripts Category:BrainPOP Social Studies Transcripts Category:BrainPOP Math Transcripts